Honda exec says company may review profit forecast

NitinLuthra

TAPUKARA, India (MarketWatch) -- Japan's Honda Motor Co. Ltd. (7267.TO) may review its current year's profit forecast announced in April as the yen has weakened against the U.S. dollar, Honda Chairman Satoshi Aoki said Sunday.

"We may want to review our forecast. I'm not saying we will revise but we may review if we need to revise our forecast," Aoki said in response to a query on the company's statement in April that Honda may suffer a 2.9% fall in profit in the current fiscal year to March 2008.

Honda earns about 70% of its profit from the U.S., so a weaker yen boosts its earnings by increasing the value of sales made outside Japan.

Aoki is in India to participate in the ceremony for the laying of the foundation stone of Honda's second car plant in the country, in the western state of Rajasthan.

The Japanese automaker operates in India via Honda Siel Cars India Ltd., in which it owns a 99.9% stake while the remaining 0.1% is held by Siel Ltd. (523371.BY).

Honda had based its forecast on an assumed average dollar rate of Y115 against the then-prevailing rate of Y117, Aoki said.

"Now that the yen since then has been trading weaker than Y115, that should give us some favorable impact," he said.

When asked about rising prices of commodities, which have eaten into margins of automakers globally, Aoki said "some amount of negative impact" is coming from rising costs of materials such as aluminum and copper.

He added that Honda was taking steps to boost internal efficiencies and save costs, but didn't elaborate.

Honda Siel, which sells the City, Civic and Accord sedans and the CR-V sports utility in India, earlier said it will invest up to $460 million to build and expand its second plant as it tries to garner more market share in the country's booming automobile industry.

But initially only 10 billion rupees ($230 million) will be invested to build a startup annual production capacity of 60,000 units, the company said Sunday, adding that annual capacity could be increased to 200,000 units on strong demand.

Honda will use the plant to mark its foray into India's high-volume small or compact car segment, which according to industry officials dominates overall car sales with a nearly 80% market share.

Honda's small car, which is expected to roll out of the Rajasthan plant in late 2009, will boast local content of up to 90%, Honda Siel's President and Chief Executive Masahiro Takedagawa said.

Passenger vehicle sales in India are forecast to nearly double to 2 million units by 2010 due on rising incomes and new launches including that of cars costing just INR100,000 ($2,500) - which is about half the price of the cheapest car currently sold in India.

However, Aoki said it will be a challenge to make cars at such low prices.

"A 660-cubic-centimeter mini car in Japan costs around $9,000...to make something at one third this cost is rather challenging," he said. "Personally, I'd be surprised to see such a kind of model."

Honda Siel is also doubling manufacturing capacity at its plant near New Delhi to 100,000 units by the end of this year and expects to make 150,000 units a year beginning in 2010, on the combined capacity offered by both plants.

However, the company has no plans to export small cars from India.

"We don't have any plan on that as our philosophy is to make cars wherever the demand is. But it is possible that we may export certain components of a small car as it will be a global model," Takedagawa said.

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